This paper was prepared by the FSAP mission team as part of the background work for the U.K. FSAP in the summer-fall of 2002. The primary contributor to this paper was Mark Swinburne of the IMF’s Monetary and Financial Systems Department.
More formally, FSA is an independent non-governmental body, given statutory powers under FSMA; its legal form is as a company limited by guarantee, and it is financed by the financial services industry. FSA’s Board, comprising an executive Chairman, three other executive Directors, and 11 non executive director, is appointed by HMT, with a process outlined in the “Nolan procedures” for public appointments. In addition, the FSAP team understands that in future, the positions of FSA chairman and chief executive will be separated.
See, inter alia, Richard K Abrams and Michael W. Taylor, Issues in the Unification of Financial Sector Supervision, IMF Working Paper WP/00/213, 2000; and, for a more U.K. FSA perspective, Clive Briault, The Rationale for a Single National Financial Services Regulator, FSA Occasional Paper No. 2, 1999.
For a more recent discussion for the U.K., see e.g., Clive Briault, Revisiting the Rationale for a Single National Financial Services Regulator, FSA Occasional Paper No. 162002.
The full text of the MoU can be found on official websites—e.g., at http://www.bankofengland.co.U.K./financialstability/mou.htm
In this context, the FSA chairman is appointed/removed by the Treasury, so that the chairman is not as formally independent as in the sense commonly advocated for an independent central bank. As discussed more fully in the detailed standards assessments, however (especially the transparency assessment), there are, nevertheless, some other important constraints in the U.K. system that help ensure that appointments and removals do not become unduly political matters.
Even if, in the medium-longer run, there may be no conflict between the two objectives: as in the time-inconsistency argument for a single price-stability objective for monetary policy, it is often the short-term trade-off that matters for performance over time.
More formally, this can be seen as a need to manage additional reputation risks to minimize any negative spillover to monetary policy credibility.
Briault (2002), op. cit, contains a more detailed discussion of the mechanisms.
The FSR was first published in Autumn 1996.
These transactions do not benefit from the risk reduction/transparency arrangements under RTGS, which directly effects only the clearing banks.
See especially Box 11, p. 93.
See the articles by David Rule in the December 2001 FSR “Risk Transfer Between Banks, Insurance Companies and Capital Markets: an Overview,” and the June 2001 FSR “The Credit Derivatives Market: Its Development and Possible Implications for Financial Stability.”
In particular, the articles in the June 2002 FSR by Andrew Gracie and Andrew Logan, “U.K. Bank Exposures: Data Sources and Financial Stability Analysis”; and by Glen Hoggarth and Darren Pain, “Bank Provisioning: the U.K. Experience”.
See the article by Hoggarth and Pain referenced in the preceding footnote.